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Weighing costs, benefits of free trade

From: Detroit Free Press

By: John Gallagher 

March 19, 2016

The political consensus in favor of globalization and free trade is weaker today than in decades. Alan Deardorff, a professor of economics and an authority on trade issues at the University of Michigan, says, “Indeed I have never seen this much anti-trade rhetoric in a presidential campaign.” Even in the 1992 campaign, when businessman H. Ross Perot ran a third-party campaign mostly on his opposition to the North American Free Trade Agreement (NAFTA), the other major candidates, Bill Clinton and George H.W. Bush, countered Perot’s rhetoric. Little such counterbalance to the protectionist rhetoric of candidates like Republican front-runner Donald Trump has emerged this year.

So what’s a free-trader to do? The Free Press posed that question to Sandy Baruah, president and CEO of the Detroit Regional Chamber. Baruah joined the Detroit Chamber in 2010 after serving in Washington D.C. as President George W. Bush’s last administrator of the U.S. Small Business Administration. Prior to leading the SBA, Baruah served as U.S. assistant secretary of commerce.

Question: At this point in our history how do you weigh the benefits and costs of free trade?

Answer: When I was at the U.S. Department of Commerce, there was an analysis done that showed the U.S. engagement in the global economy netted the average American household $10,000 a year. The challenge with a lot of the cost of free trade — we certainly agree there are costs — those costs are concentrated. You can point to factories that have shut down and the people in those factors who no longer have jobs. You can point to communities that were either textile communities or automotive communities or timber communities that are no longer producing those products and those communities have suffered. We certainly have more than our fair share of those in Michigan.

The costs are concentrated but the benefits are diffuse. And that makes it a very potent political issue.

Q: The battle lines on free trade are drawn pretty starkly these days. Presidential candidates like Donald Trump are using some of the most openly protectionist rhetoric we’ve heard in many years. Your thoughts on that?

A: I think this country needs a much more robust and in-depth conversation about what this really is. Certainly for us as a Chamber, we’ve been generally in favor of most free-trade agreements. But we’ve kind of sat out the Korean free trade agreement mainly because our auto companies and our Tier One suppliers really had a lot of pause about the Korean free trade agreement. As a membership organization, we just kind of sat out of that.

Also on the Trans-Pacific Partnership, we have questions about that as well. Part of it we like a lot. We certainly want our American companies to be a player in setting the rules in trading with our Pacific Rim countries. The challenge is that barriers to entry in Japan aren’t necessarily tariff barriers, they’re cultural and institutional barriers that are hard to legislate around.

Q: As a business leader and someone who generally favors free-trade agreements, what do you do with a leading Republican presidential candidate like Trump, whose protectionist rhetoric is quite fierce?

A: I think I can safely say we really don’t take much of what Donald Trump says seriously. For a while he was fixated on Ford Motor Company (and Ford’s presence in Mexico). So why is he fixated on Ford? Every global auto manufacturer has a presence in Mexico for multiple reasons. So why this fixation on Ford? Is he going to unilaterally change the provisions of NAFTA? Those are the kinds of things that he says that once you give it a moment’s thought really hold no water.